presentation by he mr. eee mtango, ambassador of tanzania and dean of the african diplomatic ...

18 Pages·2008·0.02 MB·English

PRESENTATION BY H.E. MR. E.E.E. MTANGO,
AMBASSADOR OF TANZANIA AND DEAN OF THE
AFRICAN DIPLOMATIC CORPS IN JAPAN AT
GRIPS-ODI-JICA JOINT SEMINAR: AFRICAN
GROWTH IN THE CHANGING GLOBAL ECONOMY
Topic: African Growth, Financial Crisis
and Implications for TICAD IV
OUTLINE
1．Anatomy of African Growth, pre-crisis period
2. Global Financial Crisis and its effects on:
- African Economy and Trade
- Foreign Direct Investments
- Capital and Equity Markets
- Banking System
- ODA
- Tourism Industry
- Remittances from Africans in Diaspora
- Foreign Reserves
- Achievement of MDGs
3. Implications on TICAD IV
4．What to do.
AFRICAN GROWTH
(Pre-Financial Crisis Period)
- Africa has enjoyed 10 years of sustained growth averaging 5% GDP
growth per annum.
- Early 2008 average GDP forecast at 6.5% p.a.
- Growth due to strong demand for Africa’s exports, high commodity
prices, widened markets into Asia (China, India, South Korea),
diversified sources of finance (investments from China, India,
Middle East), and remittances from Africans in diaspora.
- Many African countries spent decades gearing economic growth to
attract more private capital to dispel the reputation of unreliable
investment destination.
GLOBAL FINANCIAL CRISIS
2.1. General Observations
-The financial crisis came as African economies were turning
the corner.
- Effect of global financial crisis is already being felt;
e.g. – Tanzania downgraded growth forecast to 7.5% down
from 7.8%. AfDB forecast average growth of 5% down from
6.5%.
- However, the effect is to the Economies of African countries,
in general. African Banks are not suffering from credit crisis as
such since they are less exposed to the global credit system.
GLOBAL FINANCIAL CRISIS
2.2. Effect on African Economy and Trade:
If factories and supermarkets close in U.S.A., Europe, etc., this
will lead to less demand for goods from Africa and consequently,
- Commodity prices fall, exports decline and many exporters lose
markets (e.g. markets for garments for South Africa, Mauritius,
Kenya, Swaziland, etc.)
- Foreign currency income slump due to reduced demand and low
prices.
- Factories may close down, jobs lost resulting to unemployment
increase.
- The health of banking sectors will be affected and defaulters build
up.
- Economic slow down inevitable consequence.
- Balance of payments will be negatively affected.
- Importers would rush to hoard foreign currency leading to free
fall of local currency.
GLOBAL FINANCIAL CRISIS
2.3. Effect on Foreign Direct Investments
- Fall of inward investments affecting important sectors such as
agriculture, infrastructure development, health and education.
- Banks including World Bank (especially the commercial arm of
IFC) will fail to raise capital from the Stock Exchange or from
other banks to invest in Africa,
- Reduced or reversed portfolio inflows as investors flee to safer
assets; Investors will sell securities causing local currencies to
depreciate,
GLOBAL FINANCIAL CRISIS
2.3. Effect on Foreign Direct Investments
- Roads, energy and utility projects which need foreign capital
will be affected,
- Money will be moved out of new projects to shore up balance
sheets,
- Trade finance that is essential to export reliant countries may
dry up,
- Planned issue of infrastructure bonds by African countries (e.g.
Kenya, Tanzania) in international markets will have to be
delayed as risk has become very high.
GLOBAL FINANCIAL CRISIS
2.4. Effect on Capital Markets/Equity Markets
- Countries with liberalized capital accounts (Nigeria, S.
Africa and Kenya) will be the first to suffer due to the
tendency for investors to withdraw to safer markets.
- Lower portfolio inflows and lower FDI inflows,
- Reverse portfolio inflows as investors flee to safer
markets,
- Equity markets may fall sharply,
- Investors may sell securities and depreciate local
currencies (already happening in Uganda, Zambia).
GLOBAL FINANCIAL CRISIS
2.5. Effect on Banking System
- Decline of quality of Banks’ credit portfolios
- Losses in other financial assets (e.g. those deposited with
foreign correspondent banks),
- Capital repatriation by private banks (which are usually
foreign-owned).
GLOBAL FINANCIAL CRISIS
2.6. Effects on ODA
- Due to recession, rich countries may be tempted to cut
down on ODA,
- Concessional loans may be reduced,
- Transaction costs are likely to rise,
- Roads, energy and utility projects will be affected,
- Countries usually receiving larger share of ODA (Uganda,
Ghana, Tanzania) likely to suffer.